Theoretical And Empirical Study Of The Pricing Of Credit Risk Mitigation

Since2005, with the strong support of national policy, our credit bonds market has been developing rapidly, and the size of the market is the first in Asia. At the same time, the risk structure of China’s bond market also becomes the risk structure of interest risk and credit risk structure. The Credit Risk Mitigation(CRM) which was introduced in October29,2010made up the blank of the credit derivatives market in China, enriched the methods that market participants uses to manage credit risk, and it is extremely important for the stability and development of China’s financial markets.As a market-oriented credit derivatives, the completeness and accuracy of the pricing methods on CRM will directly affect the development of the CRM market. Because the information of China’s bond market is imperfect, so the Risk-neutral pricing model based on the bond’s price will be more suitable for China market than Real-world pricing model based on historical information disclosure. The Hull-White model was extended to make the parameter data can be get from the bond market. Using the data of CRMW which had been issued to analysis the Risk-neutral pricing model, the empirical results show that the pricing model is effective to China’s CRM, and the recovery rate has no significant effect on the price.As a "Chinese version" CDS, CRM market is still in its infancy, the financial crisis which outbreak in2008exposed the problems in contract development, trading, regulatory aspects, this also give a certain referential significance for the CRM market in China. The CRM pricing models will be more abundant and the pricing accuracy will continue to improve with the development of China’s bond market.